Interest and Percentages, Part 1 – Thinking Like a Banker

Interest Percentage Pie Chart

How do interest and percentages stack up?

Over the last couple of years, I have come to realize how important it is for us to think strategically—and very differently than most of us were taught in school—about interest and percentages.

I think the first time someone brought this to my attention was when one of my advisors asked, “What does your bank pay to borrow money from you right now?”

At the time, I think I was receiving about 0.1% interest on (some of) my deposits. (Many pay nothing at all. And if I were living in Europe or Japan, they would be charging me interest for parking my money with them.) So I said, “Let’s say 0.1%.”

“Okay,” said my advisor. “And how much are they charging in interest if you want to borrow from them?” (more…)

Social INsecurity

The U.S. government's Social Security system is a Ponzi Scheme.

A Ponzi scheme–like the U.S. government’s Social Security program–will only last as long as there are enough fools to cover the payments promised to those who came before. The question is: when and how will the fraud finally come to light? And what will happen when Americans finally acknowledge it for what it is?

AARP’s “Take a Stand” Program

Jo Ann Jenkins, CEO of the American Association of Retired Persons (AARP) writes, “Social Security is a promise we’ve been able to keep for generations, thanks to the courage of many of our nation’s leaders.” Fascinating sentence, that.

I am intrigued most especially by the reference to “we”—that “we’ve been able to keep” some “promise.” Who is this “we”?

And the idea of “courage” on the part of “our nation’s leaders.” –Really?

Jenkins attempts to explain herself:

The struggle to enact and improve Social Security took the leadership of Presidents Franklin D. Roosevelt, who started the program, and Ronald Reagan, whose bipartisan efforts saved the program from fiscal ruin in the 1980s. They stood up to critics, bridged political divides, and fought off constitutional challenges to protect the retirement security of the middle class and help keep tens of millions of Americans and their families financially resilient.

Now, she says, presumptive political leaders need to “tell all Americans how they’ll update Social Security . . . [to] keep [it] strong. . . . That’s why AARP [has created its “Take a Stand” program to press] the [current presidential] candidates to spell out their plans to keep Social Security’s promise alive for our children and grandchildren.”

Stirring words. Too bad they are so out of touch with reality.

If you are hoping to be Ready2Prosper in your older years, you would do well to pay attention. (more…)

Cash Flow Index Solution for The Girl with Three Loans

Cash Flow Index Counselor Presents His Best CounselA professional financial counselor’s advice to a young woman who feels like she is drowning in debt. Counsel based on Dale Clarke’s Cash Flow Index idea.

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Yesterday, I summarized the predicament of Liza, The Girl with the Three Loans. I asked you, considering Liza’s circumstances, to think about what she should do (or should have done) to address her seemingly hopeless situation.

Today, I share the advice of Tim Cardon, an advocate for Dale Clarke’s “Cash Flow Index.”1 It was Mr. Cardon who told me Liza’s story. He hoped it would help me understand and embrace the value of CFI. (more…)

The Girl with the Three Loans

The girl with the three loans

Three loans weighing her down; which should she pay off first?

A nuts-and-bolts, real-life analysis of how to counsel someone who feels like she is drowning in debt. How can she escape the rip tide?

Today, I will set up the situation. In future posts, we will consider possible solutions to her problems. (more…)

Financial Musical Chairs

financial focus

When last I played musical chairs with other adults, we were nowhere near as nonchalant as these kids. We slithered from chair to chair with our butts down as long as possible. We wanted to be in mid-air only for the briefest period of time. So where do you want your butt to be when your personal financial music stops?

I was listening to the podcast of two of my favorite financial commentators several weeks ago when they made an offhand comment that slowly painted a picture in my mind.

They said something about there being two types of investors in the world. Some people buy assets to produce money so that they can buy more assets. Others amass money so they can buy assets that they hope will produce more money.

As I thought about the comment, it struck me that they were describing a musical chairs kind of situation. And I formulated a question: As you approach investing, do you think of money as being the “chair” . . . or cash-flowing assets as being the “chair”? (more…)